MARSHALL INTERNATIONAL STOCK FUND
(A PORTFOLIO OF MARSHALL FUNDS, INC.)
PROSPECTUS
The shares offered in this prospectus represent interests in the Marshall
International Stock Fund (the "Fund"), a diversified investment portfolio of the
Marshall Funds, Inc. (the "Corporation"), an open-end management investment
company (a mutual fund). The Fund's investment objective is long-term capital
growth which it seeks to achieve through a flexible policy of investing
primarily in equity securities of companies and governments outside the United
States, although the Fund may also purchase debt obligations and invest in
domestic issuers when appropriate to achieve its investment objective. This
prospectus contains the information you should read and know before you invest
in the Fund. Keep this prospectus for future reference.
The Corporation consists of the following thirteen separate investment
portfolios, each having a distinct investment objective and policies.
EQUITY FUNDS
- Marshall Balanced Fund
- Marshall Equity Income Fund
- Marshall International Stock Fund
- Marshall Mid-Cap Stock Fund
- Marshall Stock Fund
- Marshall Value Equity Fund
INCOME FUNDS
- Marshall Short-Term Income Fund
- Marshall Government Income Fund
- Marshall Intermediate Bond Fund
MONEY MARKET FUNDS
- Marshall Money Market Fund
- Investment Shares
- Trust Shares
- Marshall Tax-Free Money Market Fund
TAX-FREE FUNDS
- Marshall Short-Term Tax-Free Fund
- Marshall Intermediate Tax-Free Fund
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, MARSHALL & ILSLEY CORP. OR ANY OF ITS BANKING
SUBSIDIARIES ("M&I CORP."), AND THE SHARES ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE FUND MAY BORROW MONEY FOR
INVESTMENT PURPOSES WHICH MAY BE CONSIDERED A SPECULATIVE ACTIVITY AND MAY
INVOLVE GREATER RISK AND ADDITIONAL COST TO THE FUND.
The Fund has also filed a separate Statement of Additional Information dated
September 1, 1994, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to or calling Marshall Funds Investor
Services at 414-287-8500 or 1-800-236-8560, M&I Brokerage Services, Inc. or any
M&I Bank.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated September 1, 1994
TABLE OF CONTENTS
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SYNOPSIS 1
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SUMMARY OF FUND EXPENSES 2
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Temporary Investments 4
PORTFOLIO INVESTMENTS AND STRATEGIES 4
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Equity and Fixed Income Securities 4
Depositary Receipts 5
Convertible Securities 5
Debt Obligations 6
Fixed Rate Obligations 6
Floating Rate Obligations 6
Forward Commitments 6
Options on Securities or Indices
and Futures Contracts 6
Foreign Currency Transactions 7
Forward Foreign Currency Exchange
Contracts and Options on
Foreign Currencies 8
U.S. Government Obligations 9
Money Market Instruments 9
Repurchase Agreements 9
Investing in Securities of Other
Investment Companies 9
When-Issued and Delayed Delivery
Transactions 10
Lending of Portfolio Securities 10
Borrowing 10
Investment Grade Ratings 10
Investment Risks 11
Exchange Rates 11
Foreign Companies 11
U.S. Government Policies 12
Futures and Options 12
Investment Limitations 12
MARSHALL FUNDS, INC. INFORMATION 13
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Management of Marshall Funds, Inc. 13
Board of Directors 13
Investment Adviser and Subadviser 13
Advisory and Subadvisory Fees 13
Adviser's Background 14
Subadviser's Background 14
Portfolio Management Team 15
Distribution of Fund Shares 15
Distribution Plan 15
Administrative Arrangements 16
Other Payments to Financial Institutions 16
ADMINISTRATION OF THE FUND 16
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Administrative Services 16
Custodian 17
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 17
Shareholder Servicing Arrangements 17
Legal Counsel 17
Independent Public Accountants 17
Brokerage Transactions 17
Expenses of the Fund 18
NET ASSET VALUE 18
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INVESTING IN THE FUND 18
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Share Purchases 18
Through M&I Trust Companies 18
Through MFIS 18
Through M&I Brokerage Services, Inc. 18
Through Authorized Broker/Dealers 19
By Mail 19
By Wire 19
Minimum Investment Required 19
What Shares Cost 19
Systematic Investment Program 19
Certificates and Confirmations 20
Dividends and Capital Gains 20
EXCHANGE PRIVILEGE 20
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Exchanging Shares 20
Exchange-by-Telephone 21
REDEEMING SHARES 21
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By Mail 22
By Telephone 22
Signatures 22
Systematic Withdrawal Program 23
Redemption Before Purchase
Instruments Clear 23
Accounts with Low Balances 23
SHAREHOLDER INFORMATION 23
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Voting Rights and Common Stock 23
EFFECT OF BANKING LAWS 24
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TAX INFORMATION 25
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Federal Income Tax 25
PERFORMANCE INFORMATION 26
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ADDRESSES Inside Back Cover
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SYNOPSIS
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The Corporation was incorporated under the laws of the State of Wisconsin on
July 31, 1992. The Articles of Incorporation permit the Corporation to offer
separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
This prospectus relates only to the shares of the portfolio known as Marshall
International Stock Fund ("Fund") of the Corporation. The Fund is designed as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio consisting primarily of foreign equity securities.
Shares of the Fund are designed for investors who wish to spread their
investments beyond the United States and who are prepared to accept the
particular risks associated with these investments. It is not intended to
provide a complete investment program for an investor. In addition to investing
in foreign securities, the Fund may make certain other investments and employ
certain other investment techniques that involve risks, including entering into
repurchase agreements, lending portfolio securities, and entering into futures
contracts and related options as hedges. These risks are described under
"Investment Policies" and "Portfolio Investments and Strategies."
A minimum initial investment of $1,000 is required for the Fund. Subsequent
investments must be in amounts of at least $50. Shares of the Fund are sold and
redeemed at net asset value without a sales charge. Information on purchasing
and redeeming shares may be found under "Investing in the Fund" and "Redeeming
Shares." Additionally, information regarding the exchange privilege offered with
respect to the Corporation may be found under "Exchange Privilege." M&I
Investment Management Corp. is the investment adviser to the Fund, and Templeton
Investment Counsel, Inc. is the Fund's subadviser. See "Marshall Funds, Inc.
Information."
SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)................. None
Exchange Fee........................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of estimated average net assets)
Management Fee ..................................................................... 1.00%
12b-1 Fee(1)........................................................................ None
Total Other Expenses................................................................ 0.50%
Shareholder Servicing Fees.............................................. 0.02%
Total Annual Fund Operating Expenses...................................... 1.50%
</TABLE>
(1) The Fund has no present intention of paying or accruing 12b-1 fees during
the fiscal year ending August 31, 1995. If the Fund were paying or accruing
12b-1 fees, the Fund would be able to pay up to 0.25% of its average daily net
assets for 12b-1 fees. See "Marshall Funds, Inc. Information."
* Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending August 31, 1995. During
the course of this period, expenses may be more or less than the average
amounts shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Marshall Funds, Inc. Information." Wire-transferred redemptions
may be subject to an additional fee.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) redemption at the end of each time
period................................................................... $ 15 $47
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING AUGUST 31, 1995.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital growth. While there is
no assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus. The
investment objective of the Fund cannot be changed by the Board of Directors
("Directors") without shareholder approval.
INVESTMENT POLICIES
The Fund pursues its investment objective through a flexible policy of investing
in stocks and debt obligations of companies and governments outside the United
States. Under normal market conditions, at least 65% of the Fund's total assets
will be invested in securities of issuers domiciled in at least three different
nations outside the United States, and at least 65% of the Fund's total assets
will be invested in equity securities. "Equity securities," as used herein,
refers to common stock, preferred stock and warrants or rights to subscribe to
or purchase such securities. The Fund may also invest up to 35% of its total
assets in debt securities or securities convertible into common or preferred
stock when, in the judgment of the Fund's subadviser, the capital appreciation
available through such investment outweighs the potential for capital growth
through investment in equity securities. Any income realized by the Fund will be
incidental to its investment objective of long-term capital growth. In selecting
securities, the Fund's subadviser attempts to identify those companies in
various countries and industries where economic and political factors, including
currency movements, are likely to produce above-average opportunities for
capital appreciation.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in securities of issuers in any
foreign country, developed or undeveloped, as well as the United States. These
securities may be denominated in currencies other than U.S. dollars. Acceptable
investments include the following:
- common stocks;
- preferred stocks;
- convertible securities;
- sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs");
- debt obligations (including bonds, notes, debentures and commercial
paper) of corporations and governments rated, at the time or purchase, in
the investment grade category by a nationally recognized statistical
rating organization ("NRSRO") (i.e., Baa or better by Moody's Investors
Services, Inc. ("Moody's") or BBB or better by Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if
unrated, determined by the Fund's subadviser to be of comparable quality.
See "Investment Grade Ratings" below;
- put and call options on securities and indices and futures contracts;
- instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured in full by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC. Bank instruments may include
interest-bearing call deposits, time deposits, bankers' acceptances,
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs"); and
- U.S. and foreign short-term money market instruments, including
repurchase agreements.
In addition, the Fund may purchase certain other investments and engage in
certain other investment strategies (such as entering into forward commitments
and foreign currency transactions), as described below under "Portfolio
Investments and Strategies." The risks associated with the Fund's investments
and strategies are described below under "Portfolio Investments and Strategies"
and "Investment Risks."
TEMPORARY INVESTMENTS. For temporary defensive purposes (up to 100% of its
total assets) and to maintain liquidity (up to 35% of its total assets), the
Fund may invest in cash and cash items, denominated in U.S. dollars or the
currency of any foreign country, issued by entities organized in the United
States or any foreign country. Temporary investments may include the following:
- short-term (less than one year to maturity) and medium-term (not greater
than five years to maturity) obligations issued or guaranteed by the U.S.
government or the governments of foreign countries, their agencies or
instrumentalities;
- finance company and corporate commercial paper and other short-term
corporate obligations rated in the top two categories by an NRSRO (i.e.,
A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch)
or, if unrated, of comparable quality as determined by the Fund's
subadviser;
- obligations (including certificates of deposit, time deposits and
bankers' acceptances) of U.S. and foreign banks having total assets in
excess of $100,000,000; and
- repurchase agreements.
PORTFOLIO INVESTMENTS AND STRATEGIES
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EQUITY AND FIXED INCOME SECURITIES. The Fund will invest its assets primarily
in equity securities of companies that appear to have growth potential. However,
subject to its investment policies, the Fund may invest in fixed income
securities, convertible securities, warrants, or other obligations of companies
or governments, if they appear to offer potential for higher return and capital
appreciation. Certain debt securities can provide the potential for capital
appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest, and ratings upgrades. The Fund may invest in debt or
preferred securities which have equity features, such as conversion of exchange
rights, or which carry warrants to purchase common stock or other equity
interests. Such equity features enable the holder of the bond or preferred
security to benefit from increases in the market price of the underlying equity
security.
DEPOSITARY RECEIPTS. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored ADRs, GDRs and EDRs (collectively, "Depositary
Receipts"). ADRs are Depositary Receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored Depositary Receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored Depositary
Receipts. Depositary Receipts also involve the risks of other investments in
foreign securities, as discussed below.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities that are
rated, at the time of purchase, investment grade by an NRSRO or, if unrated, of
comparable quality as determined by the Fund's subadviser. Convertible
securities are fixed income securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible bonds, convertible preferred stock or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which entitle the holder to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. A Fund will
exchange or convert the convertible securities held in its portfolio into shares
of the underlying common stocks when, in the subadviser's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, the Fund will hold or trade
the convertible securities. In selecting convertible securities for the Fund,
the Fund's subadviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Fund's subadviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
DEBT OBLIGATIONS. The Fund may invest in debt obligations, including corporate
bonds, notes, and debentures, which may have fixed or floating rates of interest
and which are rated, at the time or purchase, investment grade by an NRSRO or,
if unrated, of comparable quality as determined by the Fund's subadviser.
FIXED RATE OBLIGATIONS. The Fund may invest in fixed rate securities,
including fixed rate securities with short-term characteristics. Fixed rate
securities with short-term characteristics are long-term debt obligations
but are treated in the market as having short maturities because call
features of the securities may make them callable within a short period of
time. A fixed rate security with short-term characteristics would include a
fixed income security priced close to call or redemption price or fixed
income security approaching maturity, where the expectation of call or
redemption is high.
Fixed rate securities exhibit more price volatility during times of rising
or falling interest rates than securities with floating rates of interest.
This is because floating rate securities, as described below, behave like
short-term instruments in that the rate of interest they pay is subject to
periodic adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to
fluctuating interest rates. In periods of rising interest rates the value
of a fixed rate security is likely to fall. Fixed rate securities with
short-term characteristics are not subject to the same price volatility as
fixed rate securities without such characteristics. Therefore, they behave
more like floating rate securities with respect to price volatility.
FLOATING RATE OBLIGATIONS. The Fund may invest in floating rate debt
obligations, including increasing rate securities. Floating rate securities
are generally offered at an initial interest rate which is at or above
prevailing market rates. The interest rate paid on these securities is then
reset periodically (commonly every 90 days to an increment over some
predetermined interest rate index). Commonly utilized indices include the
three-month Treasury bill rate, the 180-day Treasury bill rate, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime
rate of a bank, the commercial paper rates, or the longer-term rates on
U.S. Treasury securities.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize a short-term profit or loss.
OPTIONS ON SECURITIES OR INDICES AND FUTURES CONTRACTS. In order to hedge
against market shifts, the Fund may purchase put and call options on securities
or securities indices. In addition, the Fund may seek to generate income to
offset operating expenses and/or may hedge a portion of its portfolio
investments through writing (i.e., selling) covered put and call options. An
option on a security is a contract that permits the purchaser of the option, in
return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
permits the purchaser of the option, in return for the premium paid, the right
to receive from the seller cash equal to the difference between the closing
price of the index and the exercise price of the option. The Fund may write a
call or put option only if the option is "covered." This means that so long as
the Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the call, or hold a call at the same exercise price, for
the same exercise period, and on the same securities as the written call. A put
is covered if the Fund maintains liquid assets with a value equal to the
exercise price in a segregated account, or holds a put on the underlying
securities at an equal or greater exercise price. The value of the underlying
securities on which options may be written at any one time will not exceed 25%
of the total assets of the Fund. The Fund will not purchase put or call options
if the aggregate premium paid for such options would exceed 5% of its total
assets at the time of the purchase.
Options purchased or written by the Fund will be traded on United States and
foreign exchanges or in the over-the-counter markets. Over-the-counter options
are two-party contracts with price and terms negotiated between buyer and
seller. In contrast, exchange-traded options are third-party contracts with
standardized strike prices and expirations dates and are purchased from a
clearing corporation. Exchange-traded options generally have a continuous liquid
market while over-the-counter options may not. The Fund purchases and writes
options only with investment dealers and other financial institutions (such as
commercial banks or savings and loan associations) deemed creditworthy by the
Fund's subadviser.
For hedging purposes only, the Fund may buy and sell covered financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of the foregoing. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on a
future date. An index futures contract is an agreement to take or make delivery
of an amount of cash based on the difference between the value of the index at
the beginning and at the end of the contract period. A futures contract on a
foreign currency is an agreement to buy or sell a specified amount of a currency
for a set price on a future date. When the Fund enters into a futures contract,
it must make an initial deposit, known as "initial margin," as a partial
guarantee of its performance under the contract. As the value of the security,
index, or currency fluctuates, either party to the contract is required to make
additional margin payments, known as "variation margin," to cover any additional
obligation it may have under the contract. In addition, when the Fund enters
into a futures contract, it will segregate assets to "cover" its position in
accordance with the Investment Company Act of 1940 ("Act"). See "Investment
Objectives and Policies - Futures and Options Transactions" in the Statement of
Additional Information.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign
currency exchanges may be used by the Fund to protect against a decline in the
value of one or more currencies, such efforts may also limit any potential gain
that might result from a relative increase in the value of such currencies and
might, in certain cases, result in losses to the Fund. Further, the Fund may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations. Cross-hedging
transactions by the Fund involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability that is the
subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. A forward foreign currency exchange contract ("forward
contract") is an obligation to purchase or sell an amount of a particular
currency at a specific price and on a future date agreed upon by the
parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund
generally will not enter into a forward contract with a term of more than
one year. The Fund will generally enter into a forward contract to provide
the proper currency to settle a securities transaction at the time the
transaction occurs ("trade date"). The period between trade date and
settlement date will vary between twenty-four hours and thirty days,
depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the subadviser will consider the likelihood
of changes in currency values when making investment decisions, the
subadviser believes that it is important to be able to enter into forward
contracts when it believes the interests of the Fund will be served. The
Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated
in that currency.
The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign currency-denominated portfolio securities and against increases in
the U.S. dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. government
obligations, which generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These securities
are backed by: the full faith and credit of the U.S. Treasury; the issuer's
right to borrow an amount limited to a specific line of credit from the U.S.
Treasury; the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or the credit of the agency or
instrumentality issuing the obligations. Examples of agencies and
instrumentalities which are permissible investments which may not always receive
financial support from the U.S. government are: Federal Farm Credit Banks;
Federal Home Loan Banks; Federal National Mortgage Association; The Student Loan
Marketing Association; and Federal Home Loan Mortgage Corporation.
MONEY MARKET INSTRUMENTS. The Fund may invest in domestic and foreign
short-term money market instruments, including interest-bearing call deposits
with banks, government obligations, ECDs, ETDs, Yankee CDs, bankers'
acceptances, commercial paper, short-term corporate debt securities, and
repurchase agreements. These investments may be used to temporarily invest cash
received from the sale of Fund shares, to establish and maintain reserves for
temporary defensive purposes, or to take advantage of market opportunities.
REPURCHASE AGREEMENTS. The securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of open-end and closed-end investment companies. However, the
Fund will not own more than 3% of the total outstanding voting stock of any
investment company, invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in investment
companies in general.
In order to comply with certain state restrictions, the Fund will limit its
investments in other open-end investment companies to those with sales loads of
less than 1.00% of the offering price. Although the adviser will waive its
investment advisory fee on that portion of the Fund's assets that are invested
in securities of open-end investment companies, investment companies incur
certain expenses, such as custodian and transfer agency fees. Therefore, the
Fund's investment in other investment companies would be subject to such
duplicate expenses.
Some countries have authorized the formation of closed-end investment companies
to facilitate indirect foreign investment in their capital markets. In order to
comply with certain state restrictions, the Fund will purchase securities of
closed-end investment companies only in open-market transactions involving only
customary brokerage commissions. These restrictions do not apply if the shares
of the investment company are acquired in a merger, consolidation,
reorganization or acquisition. Shares of certain closed-end investment companies
may at times be acquired only at market prices representing premiums to their
net asset values, although they may also be acquired at discounts to their net
asset
values. As with open-end investment companies, the Fund's investment in
closed-end investment companies would involve duplication of certain fees,
including advisory fees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time, thereby involving a risk that the yield obtained from the
investment will be less than that available in the market when delivery takes
place. The Fund may engage in when-issued and delayed delivery transactions for
the purpose of acquiring portfolio securities consistent with the Fund's
investment objective and policies. Settlement days may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous. No fees
or other expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or both,
up to one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
subadviser has determined are creditworthy under guidelines established by the
Directors and will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the securities loaned.
BORROWING. The Fund may borrow up to one-third of the value of its total assets
from banks to increase its holdings of portfolio securities. The Fund is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value of
the portfolio securities on the Fund's net asset value, and money borrowed will
be subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances) which may or may not exceed
the income received or capital appreciation realized from the securities
purchased with borrowed funds.
INVESTMENT GRADE RATINGS. Except where a higher rating is specified, the Fund
may invest in securities rated investment grade, which is the top four rating
categories, by an NRSRO (i.e., Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB
by S&P and Fitch). Securities rated "Baa" by Moody's or "BBB" by S&P or Fitch
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than higher rated securities. If any security purchased by
the Fund is subsequently downgraded, securities will be evaluated on a
case-by-case basis by the Fund's subadviser, who will determine whether or not
the security continues to be an acceptable investment. If not, the security will
be sold. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information.
INVESTMENT RISKS. As with other mutual funds that invest primarily in equity
securities, the Fund is subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time, and
all equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
With respect to debt obligations which the Fund may purchase, their prices move
inversely to interest rates, and the amount of changes in market prices of debt
obligations in response to changes in market interest rates generally depends on
the maturity of the debt obligations; the debt obligations with the longest
maturities will experience the greatest market price changes.
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. At least three different
countries will always be represented in the Fund's portfolio.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. Investments in
companies domiciled in developing countries may be subject to potentially higher
risks and volatility than investments in developed countries with more mature
economies. These risks include: (i) less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
liquidity and greater price volatility; (iii) certain national policies which
may restrict the Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (v)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vi) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
EXCHANGE RATES. Foreign securities may be denominated in foreign
currencies. Therefore, the value in U.S. dollars of the Fund's assets and
income may be affected by changes in exchange rates and regulations.
Although the Fund values its assets daily in U.S. dollars, it will not
convert its holding of foreign currencies to U.S. dollars daily. When the
Fund converts its holdings to another currency, it may incur conversion
costs. Foreign exchange dealers realize a profit on the difference between
the prices at which they buy and sell currencies.
FOREIGN COMPANIES. The risks associated with investing in foreign
companies include: risks of adverse political and economic developments
(including possible governmental seizure or nationalization of assets); the
possible imposition of exchange controls or other governmental
restrictions; default in foreign government securities; foreign companies
are not generally subject to uniform financial reporting, auditing and
accounting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies; less readily available
market quotations on foreign companies; the possibility of less publicly
available information on foreign securities and their issuers; differences
in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; generally lower foreign stock
market volume; the likelihood that foreign securities may be less liquid or
more volatile; foreign brokerage commissions and other transaction costs
(such as custodial services) may be higher; unreliable mail service between
countries; restrictions on foreign investments in other jurisdictions;
difficulties which may be encountered in obtaining or enforcing a court
judgment abroad and affecting repatriation of capital invested abroad; and
delays or problems in settlement of foreign transactions, which could
adversely affect shareholder equity or cause the Fund to miss attractive
investment opportunities. In addition, foreign securities may be subject to
foreign taxes, which reduce yield and total return. Different risks may
also exist for obligations of foreign banks, domestic branches of foreign
banks or foreign branches of domestic banks since they may not be subject
to the same regulatory requirements, loan limitations, examinations, or
accounting, auditing and recordkeeping requirements as United States banks.
As a matter of practice, the Fund will not invest in the securities of a
foreign issuer if any risk identified above appears to the Fund's
subadviser to be substantial.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted, the
Fund will abide by them.
FUTURES AND OPTIONS. When the Fund uses futures and options on futures as
hedging devices, there is a risk that the prices of the securities subject
to the futures contracts may not correlate with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's subadviser could be incorrect in
its expectations about the direction or extent of market factors such as
interest or currency exchange rate movements. In these events, the Fund may
lose money on the futures contract or option. Also, it is not certain that
a secondary market for positions in futures contracts or for options will
exist at all times. Although the Fund's subadviser will consider liquidity
before entering into such transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any particular
futures contract or option at any particular time. The Fund's ability to
establish and close out futures and options positions depends on this
secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings; or
- with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer other than cash, cash
items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
- invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement more
than seven days after notice, over-the-counter options, and certain
securities not determined by the Directors to be liquid; or
- invest more than 5% of its net assets in warrants.
MARSHALL FUNDS, INC. INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF MARSHALL FUNDS, INC.
BOARD OF DIRECTORS. The Board of Directors is responsible for managing the
business affairs of the Corporation and for exercising all of the powers of the
Corporation except those reserved for the shareholders.
INVESTMENT ADVISER AND SUBADVISER. Pursuant to an investment advisory contract
with the Corporation, the Fund is managed by M&I Investment Management Corp.,
the Fund's investment adviser (the "Adviser"), subject to direction by the
Directors. The Adviser, in turn, has entered into a Subadvisory Contract with
Templeton Investment Counsel, Inc. ("TICI"), as described below.
It is the Adviser's responsibility to select, subject to review and approval by
the Corporation's Directors, a subadviser for the Fund that has distinguished
itself in its area of expertise in asset management and to review the
subadviser's continued performance. Subject to the supervision and direction of
the Corporation's Directors, the Adviser provides investment management
evaluation services principally by performing initial due diligence on TICI and
thereafter monitoring TICI's performance through quantitative and qualitative
analysis, as well as periodic in-person, telephonic and written consultations
with TICI. In evaluating TICI, the Adviser considers, among other factors,
TICI's level of expertise; relative performance and consistency of performance
over a minimum period of time; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. The Adviser has responsibility for communicating
performance expectations and evaluations to TICI and ultimately recommending to
the Corporation's Directors whether TICI's contract should be renewed, modified
or terminated. The Adviser provides written reports to the Directors regarding
the results of its evaluation and monitoring functions. The Adviser is also
responsible for conducting all operations of the Fund, except those operations
contracted to TICI, the custodian, the transfer agent, and the administrator.
Although TICI's activities are subject to oversight by the Directors and
officers of the Corporation, neither the Directors, the officers, nor the
Adviser evaluates the investment merits of TICI's individual security
selections. TICI has complete discretion to purchase, manage and sell portfolio
securities for the Fund, subject to the Fund's investment objective, policies
and limitations.
ADVISORY AND SUBADVISORY FEES. The Adviser is entitled to receive an
annual investment advisory fee equal to 1.00% of the Fund's average daily
net assets. The advisory fee paid by the
Fund, while higher than advisory fees paid by other mutual funds in
general, is comparable to fees paid by mutual funds with similar objectives
and policies. The investment advisory contract allows the voluntary waiver
in whole or in part of the investment advisory fees or the reimbursement of
expenses by the Adviser from time to time. The Adviser can terminate any
voluntary waiver of its fees or reimbursement of expenses at any time in
its sole discretion.
Under the terms of a Subadvisory Contract between the Adviser and TICI,
TICI will furnish to the Adviser such investment advice, statistical and
other factual information as may from time to time be reasonably requested
by the Adviser. For its services under the Subadvisory Contract, TICI is
entitled to receive an annual fee from the Adviser equal to 0.50% of the
Fund's average daily net assets up to $70 million and 0.40% of such assets
in excess thereof ("Subadvisory Fee"). Such Subadvisory Fee shall be
computed daily and paid monthly.
ADVISER'S BACKGROUND. The Adviser is a registered investment adviser and a
wholly-owned subsidiary of Marshall & Ilsley Corp., a registered bank
holding company headquartered in Milwaukee, Wisconsin. As of December 31,
1993, the Adviser had approximately $5.7 billion in assets under management
and has managed investments for individuals and institutions since its
inception in 1973. The Adviser has managed the other portfolios of the
Corporation since 1992, and managed the Newton Funds (which were
predecessors to certain of the Corporation's portfolios) since 1985. As
part of its regular banking operations, affiliates of the Adviser may make
loans to public companies. Thus, it may be possible, from time to time, for
the Fund to hold or acquire securities of issuers which are also lending
clients of the Adviser's affiliates. The lending relationship will not be a
factor in the selection of securities.
SUBADVISER'S BACKGROUND. TICI is a registered investment adviser and a
professional investment counseling firm which has been providing investment
services since 1979. As of October 31, 1993, TICI had discretionary
investment management of $9.3 billion of assets. TICI is indirectly owned
by Franklin Resources, Inc., which engages in various aspects of the
financial services industry through its subsidiaries.
TICI and its affiliates serve as advisers for a wide variety of public
investment mutual funds and private clients in many nations. TICI, its
affiliates and their predecessors have been investing globally over the
past 51 years and provide investment management and advisory services to a
worldwide client base, including over 2.9 million mutual fund shareholders,
foundations and endowments, employee benefit plans and individuals. TICI
and its affiliates have approximately 3,200 employees in ten different
countries and a global network of over 50 investment research sources. TICI
is supported by the Templeton organization's large staff of research
analysts, traders and other investment specialists based in Fort
Lauderdale, Nassau, New York, Edinburgh, Toronto, Hong Kong, Melbourne, and
Singapore. Templeton's research analysts use a disciplined, long-term
approach to value-oriented global and international investing. Securities
are selected for the Fund's portfolio from a list of eligible securities
maintained and constantly updated by Templeton's analysts on the basis of
fundamental analysis, which utilizes a global database of information on
issuers. TICI believes that the Templeton organization's team approach
benefits Fund investors by bringing together many disciplines and
leveraging the organization's extensive resources.
It is understood that TICI may have advisory, management, service or other
contracts with other individuals or entities, and may have other interests
and businesses. When a security proposed to be purchased or sold for the
Fund is also to be purchased or sold for other accounts managed by TICI at
the same time, TICI shall make such purchases or sales on a pro-rata,
rotating or other equitable basis so as to avoid any one account being
preferred over any other account. Although this may adversely affect the
price the Fund pays or receives, or the size of the position it obtains, it
may also enable TICI to negotiate lower transaction costs.
PORTFOLIO MANAGEMENT TEAM. The lead portfolio manager of the Fund is James
E. Chaney, Vice President of TICI. Prior to joining the Templeton
organization in 1991, Mr. Chaney spent six years with GE Investments, where
he was vice president of international equities. In that capacity, he had
numerous research responsibilities and also managed several accounts,
including a mutual fund. He also has another seven years' experience as an
international consulting engineer and project manager for Camp, Dresser &
McKee, Inc. and American British Consultants. Mr. Chaney received a M.B.A.
with Honors from Columbia University, where he was a member of the Beta
Gamma Sigma Honor Society. He received his M.S. in Engineering from
Northeastern University and his B.S. in Engineering from the University of
Massachusetts-Amherst.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. ("FSC") is the principal distributor for shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. FSC is a
subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with Rule 12b-1 under the Act, the Fund may pay to FSC an amount computed at an
annual rate of 0.25% of the Fund's average daily net assets to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan. FSC may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its 12b-1 compensation under the Plan to the
extent the expenses attributable to shares of the Fund exceed such lower expense
limitation as FSC may, by notice to the Corporation, voluntarily declare to be
effective. The Fund has no present intention of paying or accruing 12b-1 fees
during the fiscal year ending August 31, 1995.
FSC may select certain entities to provide sales and/or administrative services
as agents for the Fund. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding the Fund; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests.
Such entities will receive a fee from FSC based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by FSC.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to FSC except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of FSC, including amounts expended by FSC in excess of
amounts received by it from the Fund, interest, carrying or other financing
charges in connection with excess amounts expanded, or FSC's overhead expenses.
However, FSC may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings
and loan association) from being an underwriter or distributor of most
securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from acting in
the administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Directors will consider appropriate
changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law. Although state
securities laws differ, administrators in some states may be required to
register as brokers and dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. FSC may select brokers and dealers to provide
distribution and administrative services. FSC may also select administrators
(including depository or other institutions such as commercial banks and savings
and loan associations) to provide administrative services. These administrative
services include distributing prospectuses and other information, providing
account assistance, and communicating or facilitating purchases and redemptions
of the Fund's shares.
Brokers, dealers, and administrators will receive fees from FSC based upon
shares owned by their clients or customers. The fees are calculated as a
percentage of the average aggregate net asset value of shareholder accounts held
during the period for which the brokers, dealers, and administrators provide
services. This fee is in addition to the amounts paid under the Plan for
administrative services and, if paid, will be reimbursed by the Adviser and not
the Fund.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. FSC, the Adviser or their affiliates,
at their own expense and out of their own assets, may also provide other
compensation to institutions in connection with sales of Fund shares or as
financial assistance for providing substantial marketing, sales and operational
support. The support may include initiating customer accounts, providing sales
literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares of the Fund or the Corporation the
institution sells or may sell and/or upon the type and nature of sales,
operational or marketing support furnished by the institution. Any payments made
by FSC may be reimbursed by the Adviser or its affiliates.
ADMINISTRATION OF THE FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund.
Such services include certain shareholder servicing, legal and accounting
services. Federated Administrative Services provides these services at an annual
rate as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE CORPORATION
- --------------------- ------------------------------------
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for the Fund. Federated Administrative Services may choose voluntarily to waive
a portion of its fee at any time.
CUSTODIAN. Marshall & Ilsley Trust Company ("M&I Trust Company"), Milwaukee,
Wisconsin, a subsidiary of Marshall & Ilsley Corp., is custodian for the
securities and cash of the Fund. Under the Custodian Agreement, M&I Trust
Company holds the Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. M&I Trust Company may
voluntarily choose to waive all or a portion of its fee at any time. Any fee
that is charged is reflected in the "Summary of Fund Expenses."
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent for the shares of the Fund and dividend disbursing
agent for the Fund. It also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio of investments.
SHAREHOLDER SERVICING ARRANGEMENTS. Marshall Funds Investor Services ("MFIS"),
Milwaukee, Wisconsin, is the shareholder servicing agent for the Fund. As such,
MFIS provides shareholder services which include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemptions of
shares. The Fund may pay MFIS a fee equal to 0.015 of 1% of the average daily
net asset value of Fund shares for which MFIS provides shareholder services.
MFIS may voluntarily choose to waive all or a portion of its fee at any time.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser and TICI look for prompt execution of the order at a
favorable price. In working with dealers, the Adviser and TICI will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained elsewhere.
In selecting among firms believed to meet this criteria, the Adviser and TICI
may give consideration to those firms which have sold or are selling shares of
the Fund and other funds distributed by FSC or
Franklin/Templeton Distributors, Inc. The Adviser and TICI make decisions on
portfolio transactions and select brokers and dealers subject to review by the
Directors.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the
Corporation's expenses. The expenses include, but are not limited to, the cost
of: organizing the Corporation and continuing its existence; Directors' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Corporation, the Fund, and
shares of the Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, and certain accounting and
legal expenses; reports to shareholders; meetings of Directors and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily reimburse some expenses and, in addition, has undertaken
to reimburse each Fund up to the amount of its advisory fee, the amount by which
operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Shares of the Fund may be purchased through M&I Trust Company, M&I
Marshall & Ilsley Trust Company of Arizona, Marshall & Ilsley Trust Company of
Florida (the above-mentioned companies will be referred to as "M&I Trust
Companies"), MFIS, M&I Brokerage Services, Inc. and authorized broker/dealers.
Purchase orders must be received by the Fund by 3:00 p.m. (Central time) in
order for shares to be purchased at that day's net asset value. In connection
with the sale of shares of the Fund, FSC may from time to time offer certain
items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. Texas residents must
purchase shares through M&I Brokerage Services, Inc. at 1-800-236-8560.
THROUGH M&I TRUST COMPANIES. Trust customers should contact their account
officer in order to make purchase requests.
THROUGH MFIS. An investor may contact MFIS at 1-800-236-8554 by 3:00 p.m.
(Central time) in order to purchase shares of the Fund.
THROUGH M&I BROKERAGE SERVICES, INC. An investor may purchase shares of the
Fund through any M&I Bank employing a representative of M&I Brokerage Services,
Inc. ("M&I Brokerage Services").
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund.
Payment for orders may be made:
BY MAIL. To purchase shares of the Fund by mail, send a check made payable to
the Fund to Marshall Funds Investor Services, P.O. Box 1348, Milwaukee,
Wisconsin 53201-1348. Orders received by mail should be accompanied by an
account application. If a check for the purchase of shares does not clear, the
purchase will be canceled and the investor will be charged a $15 fee.
Orders by mail are considered received after payment by check is converted by
MFIS into federal funds. This is generally the next business day after MFIS
receives the check.
BY WIRE. To purchase shares by wire, you must notify MFIS by phone at
1-800-236-8554 by 3:00 p.m. (Central time), and then wire the funds as follows:
M&I Marshall & Ilsley Bank
ABA Number 075000051
Credit: Boston Financial Data Services Deposit Account Number 27480
Further credit to: Marshall International Stock Fund
Re: (Shareholder name and account number)
Following the wire transfer, you must complete an account application and mail
it to the Fund. Your bank may charge a fee for wiring funds.
Wire orders will only be accepted on days on which the Fund, M&I Bank and the
Federal Reserve wire system are open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000. Additional
purchases of $50 or more may be made at anytime. The Fund may waive or lower the
minimum or subsequent initial investment from time to time, such as for
employees of M&I Corp.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at or after the close of the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and (iii)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $50. This amount may be lowered from time
to time, such as for employees of M&I Corp. Under this program, funds may be
automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net asset
value next determined after an order is received by MFIS. A shareholder may
apply for participation in this program through MFIS.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. The Corporation will not issue
certificates evidencing shares of common stock purchased unless so requested in
writing. Where certificates are not issued, the shareholder's account will be
credited with the number of shares purchased, relieving shareholders of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued for all purchases of Fund shares.
Any shareholder may contact MFIS to deliver certificates to the transfer agent
and direct in writing that the shareholder's account be credited with the
shares. A shareholder may contact MFIS to direct in writing the transfer agent
at any time to issue a certificate for the shareholder's shares of common stock
without charge.
Detailed confirmations of each purchase or redemption or dividend payment are
sent to each shareholder. Shareholders will receive monthly statements.
In addition, the Fund will provide, upon request, photocopies of confirmations
for transactions affecting your account in prior years. A fee of $5 per year
requested will be charged to cover the cost of obtaining this information.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Capital gains, when realized by the Fund, will be
distributed at least once every 12 months. Unless shareholders request cash
payments by writing to the Fund, dividends and capital gains are automatically
reinvested in additional shares of the Fund on payment dates at the ex-dividend
date net asset value.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the Corporation. The
Corporation currently consists of Marshall Balanced Fund, Marshall Equity Income
Fund, Marshall Government Income Fund, Marshall Intermediate Bond Fund, Marshall
Intermediate Tax-Free Fund, Marshall International Stock Fund, Marshall Mid-Cap
Stock Fund, Marshall Money Market Fund (Investment Shares and Trust Shares),
Marshall Short-Term Income Fund, Marshall Short-Term Tax-Free Fund, Marshall
Stock Fund, Marshall Tax-Free Money Market Fund, and Marshall Value Equity Fund.
Shareholders have easy access to each of the Corporation's portfolios, as well
as to the Institutional Service Shares of Max-Cap Fund (a portfolio of Federated
Index Trust), through a telephone exchange program. The portfolios of the
Corporation are advised by M&I Investment Management Corp. and distributed by
FSC.
EXCHANGING SHARES. Shareholders of the Fund may exchange their Fund shares for
shares of other mutual funds advised by the Adviser at net asset value without a
sales charge. In addition, shareholders may exchange shares of the Fund for
Institutional Service Shares of Max-Cap Fund at net asset value without a sales
charge.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000, except for exchanges into Institutional
Service Shares of Max-Cap Fund, which requires a $25,000 minimum investment.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the fund into which an exchange is to be effected. Subsequent
exchanges may be made for $50 or more.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be terminated at any time. Shareholders will be
notified of the termination of the exchange privilege. A shareholder may obtain
further information on the exchange privilege by calling MFIS.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between funds which are part
of the Corporation may be given by telephone to MFIS. Trust customers should
contact their account officer. Shares may be exchanged by telephone only between
fund accounts having identical shareholder registrations.
Shareholders requesting the telephone exchange service authorize the Fund and
its agents to act upon their telephonic instructions to exchange shares from any
account for which they have authorized such services. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by MFIS and deposited to the shareholder's
mutual fund account before being exchanged.
Telephone exchange instructions must be received before 3:00 p.m. (Central time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his or her bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at its net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form as described below and can be made through MFIS
or M&I Brokerage Services. Trust customers should contact their account officer
in order to make redemption requests. Redemption proceeds will normally be
mailed, or wired if by written request, the following business day, but in no
event more than seven days, after the request is received.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written
request to the Marshall Funds Investor Services, P.O. Box 1348, Milwaukee,
Wisconsin 53201-1348. The written request should include the shareholder's name,
the Fund name, the account number, and the number of shares or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail. Additional
documentation may be required from corporations, executors, administrators,
trustees, or guardians. Shareholders should call 1-800-236-8554 for assistance
in redeeming by mail.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling MFIS
(1-800-236-8554) to request the redemption. Customers of M&I Brokerage Services
may call their account representative or MFIS for information regarding
redemption requests. Telephone redemptions, however, are not available for
retirement accounts. Shares will be redeemed at the net asset value next
determined after the Fund receives the redemption request. It is the
responsibility of MFIS to promptly submit redemption requests to the Fund.
Redemption requests must be received by 3:00 p.m. (Central time) in order for
shares to be redeemed at that day's net asset value.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of the initial application, authorization forms and information on this service
can be obtained through MFIS or M&I Brokerage Services.
A shareholder may have the redemption proceeds directly deposited by Electronic
Funds Transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, M&I Bank, and the Federal Reserve wire system are open
for business. Wire-transferred redemptions may be subject to an additional fee.
Shareholders requesting the telephone redemption service authorize the Fund and
its agents to act upon their telephonic instruction to redeem shares from any
account for which they have authorized such services. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by SAIF which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Corporation and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Corporation may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Corporation and its transfer agent
reserve the right to amend these standards at any time without notice.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for monthly or quarterly withdrawal payments in an amount
directed by the shareholder. Shareholders may redeem by periodic withdrawal
payments in a minimum amount of $100. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to shares, and the fluctuation of net asset value of
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through MFIS or M&I
Brokerage Services.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares of the Fund are purchased by check or through the Automated Clearing
House system, the proceeds from the redemption of those shares (whether redeemed
by mail or by telephone) are not available, and the shares may not be exchanged,
until MFIS is reasonably certain that the purchase check has cleared, which
could take up to seven calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000 because
of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS AND COMMON STOCK
The Corporation's authorized capital consists of 50,000,000,000 shares of common
stock with a par value of $.0001 per share, of which the Fund's authorized
capital consists of 1,000,000,000 shares of common stock. Shareholders are
entitled: (i) to one vote per full share of Common Stock; (ii) to such
distributions as may be declared by the Corporation's Directors out of funds
legally available; and (iii) upon liquidation of the Corporation, to participate
ratably in the assets of the Fund available for distribution. Each share of the
Fund gives the shareholder one vote in the election of Directors and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Corporation
have equal voting rights, except that only shares of a particular portfolio or
class are entitled to vote on matters affecting that portfolio or class. There
are no conversion or sinking fund provisions applicable to the shares, and the
holders have no preemptive rights and may not cumulate their votes in the
election of Directors. Consequently, the holders of more than 50% of the
Corporation's shares of common stock voting for the election of Directors can
elect the entire Board of Directors, and, in such event, the holders of the
Corporation's remaining shares voting for the election of Directors will not be
able to elect any person or persons to the Board of Directors.
The Wisconsin Business Corporation Law (the "WBCL") permits registered
investment companies, such as the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the Act. The Corporation has adopted the appropriate provisions
in its By-laws and does not anticipate holding an annual meeting of shareholders
to elect Directors unless otherwise required by the Act. Directors may be
removed by the shareholders at a special meeting. A special meeting of the
shareholders may be called by the Directors upon written request of shareholders
owning at least 10% of the Corporation's outstanding voting shares.
The shares are redeemable and are transferable. All shares issued and sold by
the Corporation will be fully paid and nonassessable except as provided in WBCL
Section 180.0622(2)(b). Fractional shares of common stock entitle the holder to
the same rights as whole shares of common stock except the right to receive a
certificate evidencing such fractional shares.
The definitions of the terms "series" and "class" in the WBCL differ from the
meanings assigned to those terms in this prospectus and the Fund's Statement of
Additional Information. The Articles of Incorporation of the Corporation
reconcile this inconsistency in terminology, and provide that the Fund's
prospectus and Statement of Additional Information may define these terms
consistently with the use of those terms under the Act and the Internal Revenue
Code.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end management investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company, affiliate, or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. M&I Corp. is subject to such banking laws
and regulations.
M&I Corp. believes, based on the advice of its counsel, that M&I Investment
Management Corp. may perform the services contemplated by the investment
advisory agreement with the Corporation without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such present or future statutes
and regulations, could prevent M&I Investment Management Corp. or M&I
Corp. from continuing to perform all or a part of the above services for its
customers and/or the Fund. If M&I Investment Management Corp. and M&I Corp. were
prohibited from engaging in these activities, the Directors would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by M&I Investment Management Corp. and M&I
Brokerage Services or MFIS. It is not expected that existing shareholders would
suffer any adverse financial consequences if another adviser with equivalent
abilities to M&I Investment Management Corp. is found as a result of any of
these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of the Corporation, if any, will not be combined for tax
purposes with those realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. Information on
the tax status of dividends and distribution is provided annually.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue Code may limit a shareholder's ability to claim a
foreign tax credit. Furthermore, shareholders who elect to deduct their portion
of the Fund's foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise total return and yield. Total return
represents the change, over a specified period of time, in the value of an
investment in the Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-annual compounding.
The yield does not necessarily reflect income actually earned by the Fund and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The Fund is sold without any sales load or other similar non-recurring charges.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Marshall International Stock Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
- --
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
- --
Adviser
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
- ----------------------------------------------------------------------------------------------------
- --
Subadviser
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
Suite 2100
Ft. Lauderdale, Florida 33394-3091
- ----------------------------------------------------------------------------------------------------
- --
Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
- ----------------------------------------------------------------------------------------------------
- --
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
- --
Shareholder Servicing Agent
Marshall Funds Investor Services P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
or
1000 North Water Street
Milwaukee, Wisconsin 53202
- ----------------------------------------------------------------------------------------------------
- --
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
- --
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ----------------------------------------------------------------------------------------------------
- --
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
- --
</TABLE>
G00343-01 (7/94)
MARSHALL INTERNATIONAL STOCK FUND
(A PORTFOLIO OF MARSHALL FUNDS, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the Marshall
International Stock Fund ("Fund") prospectus dated September 1, 1994. This
Statement is not a prospectus itself. To receive a copy of the Fund's
prospectus, write or call Marshall Funds Investor Services at 414-287-8500 or
1-800-326-8560, M&I Brokerage Services, Inc., or any M&I Bank.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 1, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ----------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ----------------------------------------------------------------
Types of Investments 1
Futures and Options Transactions 1
Foreign Currency Hedging Transactions 4
Risks 4
Warrants 5
Reverse Repurchase Agreements 5
Lending of Portfolio Securities 5
Portfolio Turnover 5
Investment Limitations 5
MARSHALL FUNDS, INC. MANAGEMENT 8
- ----------------------------------------------------------------
Officers and Directors 8
Fund Ownership 8
INVESTMENT ADVISORY SERVICES 8
- ----------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 9
Subadviser to the Fund 9
Subadvisory Fees 9
ADMINISTRATIVE SERVICES 9
- ----------------------------------------------------------------
CUSTODIAN 9
- ----------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ----------------------------------------------------------------
PURCHASING SHARES 10
- ----------------------------------------------------------------
Exchanging Securities for Fund Shares 10
DETERMINING NET ASSET VALUE 10
- ----------------------------------------------------------------
Determining Market Value of Securities 10
Trading in Foreign Securities 11
EXCHANGE PRIVILEGE 11
- ----------------------------------------------------------------
Requirements for Exchange 11
Making an Exchange 11
REDEEMING SHARES 11
- ----------------------------------------------------------------
Redemption in Kind 11
TAX STATUS 11
- ----------------------------------------------------------------
The Fund's Tax Status 11
Foreign Taxes 12
Shareholders' Tax Status 12
Capital Gains 12
- ----------------------------------------------------------------
TOTAL RETURN 12
- ----------------------------------------------------------------
YIELD 12
- ----------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ----------------------------------------------------------------
APPENDIX 14
- ----------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Marshall International Stock Fund (the "Fund") is a portfolio of Marshall Funds,
Inc. (the "Corporation"), which was established as a Wisconsin corporation under
the laws of the State of Wisconsin on July 31, 1992.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is long-term capital growth. While there is
no assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in the prospectus and
this Statement of Additional Information. The investment objective of the Fund
cannot be changed by the Board of Directors (the "Directors") without
shareholder approval.
The Fund invests in a diversified portfolio composed primarily of equity
securities of non-U.S. issuers. Under normal market conditions, the Fund will
invest at least 65% of its total assets in securities of issuers located in at
least three countries outside of the United States, and at least 65% of its
total assets in equity securities. However, when appropriate to achieve its
investment objective, the Fund may purchase debt obligations, invest in domestic
issuers, and engage in the investment practices and strategies described in the
prospectus and below. Unless indicated otherwise, the investment policies of the
Fund may be changed by the Directors without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
REPURCHASE AGREEMENTS. The Fund requires its custodian to take possession of the
securities subject to repurchase agreements and these securities are marked to
market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller files
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that, under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
subadviser to be creditworthy pursuant to guidelines established by the
Directors.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days following a demand by the Fund). The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. A Fund uses these arrangements to provide it with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
DEBT OBLIGATIONS. The Fund may purchase certain debt obligations known as
increasing rate securities. These securities are generally offered at an initial
interest rate which is at or above prevailing market rates. Interest rates are
reset periodically (most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set at
progressively higher increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These securities may also contain
features which give the issuer the option to convert the increasing rate of
interest to a fixed rate under such terms, conditions, and limitations as are
described in each issuer's prospectus.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling futures contracts and options on futures contracts, and buying put
and call options on portfolio securities and securities indices. The Fund may
also write covered put and call options on portfolio securities to attempt to
increase its current income or to hedge a portion of its portfolio investments.
The Fund will maintain its positions in securities, option rights, and
segregated cash subject to puts and calls until the options are exercised,
closed, or have expired. An option position on futures contracts may be closed
out over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. The Fund will not engage in
futures transactions for speculative purposes.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. Although some financial
futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the
settlement date. The closing of a
- --------------------------------------------------------------------------------
contractual obligation is accomplished by purchasing or selling an
identical offsetting futures contract. Other financial futures contract
by their terms call for cash settlements.
The Fund also may purchase and sell stock index futures contracts with
respect to any stock index traded on a recognized stock exchange or board
of trade to hedge against changes in prices. Stock index futures
contracts are based on indices that reflect the market value of common
stock of the firms included in the indices. An index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the differences between the value of the
index at the close of the last trading day of the contract and the price
at which the index contract was originally written. No physical delivery
of the underlying securities in the index is made. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement
being the difference between the contract price and the actual level of
the stock index at the expiration of the contract.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. For example,
in the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash,
U.S. government securities or highly-liquid debt securities with its
custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in
securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
To the extent required to comply with Commodity Futures Trading
Commission ("CFTC") Regulation 4.5 and thereby avoid status as a
"commodity pool operator," the Fund will not enter into a futures
contract, or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by it, plus premiums
paid by it for open options on futures contracts, would exceed 5% of the
market value of the Fund's total assets, after taking into account the
unrealized profits and losses on those contracts it has entered into;
and, provided further, that in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in
computing such 5%. Second, the Fund will not enter into these contracts
for speculative purposes; rather, these transactions are entered into
only for bona fide hedging purposes, or other permissible purposes
pursuant to regulations promulgated by the CFTC. Third, since the Fund
does not constitute a commodity pool, it will not market itself as such,
nor serve as a vehicle for trading in the commodities futures or
commodity options markets. Finally, because the Fund will submit to the
CFTC special calls for information, the Fund will not register as a
commodities pool operator.
PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
The Fund may purchase listed put options on financial and stock index
futures contracts to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipated increase in
interest rates or stock prices. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument on a
set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or
before a future date whether to assume a short position at the specified
price.
- --------------------------------------------------------------------------------
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
When the Fund sells a put on a futures contract, it receives a cash
premium in exchange for granting to the purchaser of the put the right to
receive from the Fund, at the strike price, a short position in such
futures contract, even though the strike price upon exercise of the
option is greater than the value of the futures position received by such
holder. If the value of the underlying futures position is not such that
exercise of the option would be profitable to the option holder, the
option will generally expire without being exercised. It will generally
be the policy of the Fund, in order to avoid the exercise of an option
sold by it, to cancel its obligation under the option by entering into a
closing purchase transaction, if available, unless it is determined to be
in the Fund's interest to deliver the underlying futures position. A
closing purchase transaction consists of the purchase by the Fund of an
option having the same term as the option sold by the Fund, and has the
effect of canceling the Fund's position as a seller. The premium which
the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at
the time of each transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed and over-the-counter call options on financial and stock index
futures contracts to hedge its portfolio. When the Fund writes a call
option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the
option is exercised. As stock prices fall or market interest rates rise,
causing the prices of futures to go down, the Fund's obligation under a
call option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to
increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's portfolio
securities.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but not
the obligation, to enter into the underlying futures contract at a strike
price determined at the time the call was purchased, regardless of the
comparative market value of such futures position at the time the option
is exercised. The holder of a call option has the right to receive a long
(or buyer's) position in the underlying futures contract.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES AND STOCK INDICES
The Fund may purchase put options on portfolio securities and stock
indices to protect against price movements in the Fund's portfolio
securities. A put option gives the Fund, in return for a premium, the
right to sell the underlying security to the writer (seller) at a
specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES AND STOCK INDICES
The Fund may also write covered call options to generate income and
thereby protect against price movements in the Fund's portfolio
securities. As writer of a call option, the Fund has the obligation upon
exercise of the
- --------------------------------------------------------------------------------
option during the option period to deliver the underlying security upon
payment of the exercise price or, in the case of a securities index, a
cash payment equal to the difference between the closing price of the
index and the exercise price of the option. The Fund may only sell call
options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or
has segregated cash in the amount of any additional consideration).
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against foreign currency exchange rate risks, the Fund may
enter into forward foreign currency exchange contracts and foreign currency
futures contracts, as well as purchase put or call options on foreign
currencies, as described below. The Fund may also conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward contract to buy that foreign currency for a fixed
dollar amount. This second investment practice is generally referred to as
"cross-hedging." Because in connection with the Fund's forward foreign currency
transactions an amount of the Fund's assets equal to the amount of the purchase
will be held aside or segregated to be used to pay for the commitment, the Fund
will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked to market on a daily
basis. While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Fund's ability to utilize forward contracts in the manner set forth above
may be restricted. Forward contracts may limit potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not engaged in such contracts.
The Fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates, although,
in the event of rate movements adverse to the Fund's position, the Fund may
forfeit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Fund will be traded on
U.S. and foreign exchanges or over-the-counter.
The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on the ability of the Fund's subadviser to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
RISKS
When the Fund uses futures and options on futures as hedging devices, there is a
risk that the prices of the securities or foreign currency subject to the
futures contracts may not correlate perfectly with the prices of the securities
or currency in the Fund's portfolio. This may cause the futures contract and any
related options to react differently to market changes than the portfolio
securities or foreign currency. In addition, the Fund's subadviser could be
incorrect in its expectations about the direction or extent of market factors
such as stock price movements or foreign currency exchange rate fluctuations. In
these events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Fund's subadviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular
- --------------------------------------------------------------------------------
time. The Fund's ability to establish and close out futures and options
positions depends on this secondary market. The inability to close out these
positions could have an adverse effect on the Fund's ability to effectively
hedge its portfolio.
To minimize risks, the Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total assets after
taking into account the unrealized profits and losses on those contracts it has
entered into; and, provided further, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
computing such 5%. When the Fund purchases futures contracts, an amount of cash
and cash equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a segregated
account with the Fund's custodian (or the broker, if legally permitted) to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged. When the Fund sells futures contracts, it will either
own or have the right to receive the underlying future or security, or will make
deposits to collateralize the position as discussed above.
WARRANTS
The Fund may purchase warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
underlying common stock.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. If the Fund does not have the right to vote securities on loan, it would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the portfolio will be sold whenever the Fund's
subadviser believes it is appropriate to do so in light of the Fund's investment
objective without regard to the length of time a particular security may have
been held. The investment adviser does not anticipate that the Fund's portfolio
turnover will generally exceed 50%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. A deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts, forward contracts or related options transactions is
not considered the purchase of a security on margin.
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets including the amounts
borrowed, and except to the extent that the Fund will enter into futures
contracts, options or forward contracts.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge. For purposes
of this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options; and segregation of collateral arrangements made in connection
with options activities, forward contracts or the purchase of securities
on a when-issued basis.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S.
government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other
debt securities, entering into repurchase agreements, or engaging in
other transactions where permitted by the Fund's investment objective,
policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell
futures contracts and related options, and enter into forward contracts
and related options.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer or if it would own more than 10% of the
outstanding voting securities of such issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of its total assets in any one
industry. However, investing in U.S. government securities shall not be
considered investments in any one industry.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, and certain restricted securities not determined by the
Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
- --------------------------------------------------------------------------------
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
Officers and Directors of the Corporation or the Fund's advisers, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on the New York or American Stock
Exchanges to 2% of its net assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. The Fund will not write call options
in excess of 25% of the value of its total assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
In order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the investment limitations described
above. In this regard, to comply with certain state restrictions, the Fund will
not invest more than 5% of its total assets in securities subject to
restrictions on resale under the Securities Act of 1933, except for commercial
paper issued under Section 4(2) of the Securities Act of 1933 and certain other
restricted securities which meet the criteria for liquidity as established by
the Directors. If state requirements change, these restrictions may be changed
without notice to shareholders.
MARSHALL FUNDS, INC. MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Marshall & Ilsley Corp.,
Federated Investors, Federated Securities Corp., Federated Services Company, and
Federated Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- -------------
Edward C. Gonzales* Chairman, Director, Vice President, Treasurer, and
Trustee, Federated
Federated Investors Director Investors; Vice President and Treasurer,
Federated
Tower and Treasurer Advisers, Federated Management, and Federated
Research;
Pittsburgh, PA Executive Vice President, Treasurer, and
Director,
Federated Securities Corp.; Chairman,
Treasurer, and
Trustee, Federated Administrative Services;
Trustee,
Director, Vice President and/or Treasurer of
certain
investment companies advised or distributed by
affiliates
of Federated Investors.
- ----------------------------------------------------------------------------------------------------
- -------------
John DeVincentis Director Independent Financial Consultant; retired,
Senior Vice
4700 21st Street President of Finance, In-Sink-Erator Division
of Emerson
Racine, WI 53406 Motors.
- ----------------------------------------------------------------------------------------------------
- -------------
Ody J. Fish Director Formerly, Director, Newton Income Fund, Inc.
and Newton
247 Progress Drive Growth Fund, Inc.; Private Investor; formerly
President
Hartland, WI Pal-O-Pak Insulation Company.
- ----------------------------------------------------------------------------------------------------
- -------------
Paul E. Hassett Director Formerly, Director, Newton Income Fund, Inc.
and Newton
1630 Capital Avenue Growth Fund, Inc.; Retired; formerly
President, Wisconsin
Madison, WI Manufacturers and Commerce.
- ----------------------------------------------------------------------------------------------------
- -------------
James F. Duca, II President Vice President, Marshall & Ilsley Trust
Company; Vice
1000 N. Water Street President, Marshall & Ilsley Trust Company of
Florida,
Milwaukee, WI formerly Secretary, Marshall & Ilsley Trust
Company and
Marshall & Ilsley Trust Company of Florida.
- ----------------------------------------------------------------------------------------------------
- -------------
Joseph S. Machi Vice President Vice President, Federated Administrative
Services;
Federated Investors and Assistant Director, Private Label Management, Federated
Investors;
Tower Treasurer Vice President and Assistant Treasurer of
certain funds for
Pittsburgh, PA which Federated Securities Corp. is the
principal
distributor.
- ----------------------------------------------------------------------------------------------------
- -------------
Peter J. Germain Secretary Corporate Counsel, Federated Investors.
Federated Investors
Tower
Pittsburgh, PA
- ----------------------------------------------------------------------------------------------------
- -------------
</TABLE>
* This Director is deemed to be an "interested person" of the Fund or the
Corporation as defined in the Investment Company Act of 1940.
FUND OWNERSHIP
Officers and Directors of the Corporation own less than 1% of the Fund's
outstanding shares.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is M&I Investment Management Corp. ("Adviser").
The Adviser shall not be liable to the Corporation, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation. Because of the internal controls maintained by the Adviser's
affiliates to restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Adviser or its affiliates' lending
relationships with an issuer.
The Adviser has previously served as investment adviser to Newton Money Fund,
Newton Income Fund, and Newton Growth Fund.
- --------------------------------------------------------------------------------
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the combined prospectus.
SUBADVISER TO THE FUND
Templeton Investment Counsel, Inc. ("TICI") is the subadviser to the Fund under
the terms of a Subadvisory Contract between the Adviser and TICI. TICI is a
Florida corporation and an indirect wholly-owned subsidiary of Franklin
Resources, Inc. ("Franklin"), a publicly traded company whose shares are listed
on the New York Stock Exchange. Charles B. Johnson, Rupert H. Johnson, Jr. and
R. Martin Wiskemann are principal shareholders of Franklin and own,
respectively, approximately 20%, 16% and 9.2% of its outstanding shares. Messrs.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Research services may be provided to TICI by various affiliates, including
Templeton, Galbraith & Hansberger Ltd. and Templeton Quantitative Advisors,
Inc., corporations registered under the Investment Advisers Act of 1940, and
Templeton Management Limited, a Canadian company. The research services include
information, analytical reports, computer screening studies, statistical data,
and factual resumes pertaining to securities in the United States and in various
foreign nations. Such supplemental research, when utilized, is subject to
analysis by TICI before being incorporated into the investment advisory process.
TICI pays these affiliates compensation and reimbursement of expenses as
mutually agreed upon, without cost to the Fund. These affiliates and TICI are
independent contractors and in no sense is any of them an agent for the other.
Any of them is free to discontinue such research services at any time on 30
days' notice without cost or penalty.
SUBADVISORY FEES
For its services under the Subadvisory Contract, TICI receives a subadvisory
fee, as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation. If the Fund's monthly
projected operating expenses exceed this limitation, the advisory fees
paid will be reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to be
reimbursed by the Adviser will be limited, in any single fiscal year, by
the amount of its advisory fees.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fee set forth in the
prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
For its services as custodian, Marshall & Ilsley Trust Company ("M&I Trust
Company") receives an annual fee, payable monthly, of 0.02% of the first $250
million of the Fund's average aggregate daily net assets and 0.01% on such
assets over $250 million. In addition, M&I Trust Company is reimbursed for its
out-of-pocket expenses, which include postage, telephone supplies, and wire
charges. M&I Trust Company has entered into agreements with foreign
subcustodians approved by the Directors pursuant to Rule 17f-5 under the Act.
The foreign subcustodians may not hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities. Compensation for the services of the foreign
subcustodians is based on a schedule of charges agreed on from time to time.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
The Adviser and/or TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund, the
Adviser, or TICI and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- --------------------------------------------------------------------------------
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers and dealers may be used by the Adviser and
TICI in advising the Fund and other accounts. To the extent that receipt of
these services may supplant services for which the Adviser, TICI, or their
affiliates might otherwise have paid, it would tend to reduce their expenses.
PURCHASING SHARES
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Shares are sold at their net asset value on days on which the New York Stock
Exchange is open for business. The procedure for purchasing shares of the Fund
is explained in the prospectus under "Investing in the Fund."
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and its advisers that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund shares on the day the securities are valued. One share of the Fund will
be issued for the equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
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The net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- - according to the last reported sales price on a recognized securities
exchange, if available. (If a security is traded on more than one exchange,
the price on the primary market for that security, as determined by the Fund's
adviser or subadviser, is used.);
- - according to the last reported bid price, if no sale on the recognized
exchange is reported or if the security is traded over-the-counter;
- - for short-term obligations with remaining maturities of less than 60 days at
the time of purchase, at amortized cost, which approximates fair value; or
- - at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, and options on stocks, stock indices and
futures contracts at their market values established by the exchanges at the
close of option trading on such exchanges unless the Directors determine in good
faith that another method of valuing these positions is necessary.
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TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Directors, although the actual calculation may be done by
others.
EXCHANGE PRIVILEGE
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REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000, except for exchanges into Institutional Service
Shares of Max-Cap Fund, which requires a $25,000 minimum investment. Before the
exchange, the shareholder must receive a prospectus of the fund for which the
exchange is being made.
Further information on the exchange privilege and prospectuses may be obtained
by calling Marshall Funds Investor Services, M&I Brokerage Services, Inc. or any
M&I Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee.
REDEEMING SHARES
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The Fund redeems shares at the next computed net asset value after the
redemption requests are received. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Corporation intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Directors determine to be fair and equitable.
The Corporation has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, which obligates the Corporation to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because the Fund expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company (PFIC). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
- --------------------------------------------------------------------------------
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. These dividends and any short-term capital gains are taxable as
ordinary income.
CAPITAL GAINS
Capital gains, when experienced by the Fund, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When the Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of any dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This value is annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolios securities;
- - changes in Fund expenses;
- - the relative amount of Fund cash flow; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST INDEX
(EAFE) is a market capitalization weighted foreign securities index, which is
widely used to measure the performance of European, Australian and New Zealand
and Far Eastern stock markets. The index covers approximately 1,020 companies
drawn from 18 countries in
- --------------------------------------------------------------------------------
the above regions. The index values its securities daily in both U.S. dollars
and local currency and calculates total returns monthly. EAFE U.S. dollar
total return is a net dividend figure less Luxembourg withholding tax. The
EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the
"international funds" or "global funds" category in advertising and sales
literature.
- - CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") is an unmanaged index representing share
prices of major industrial corporations, public utilities, and transportation
companies. Produced by the Dow Jones & Company, it is cited as a principal
indicator of market conditions.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, financial, and public
utility companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
the Standard & Poor's figures.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
- - FIDUCIARY CONSULTING GRID UNIVERSE, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
- - SEI DATA BASE for equity funds includes approximately 900 funds, representing
361 money managers, divided into fund types based on investor groups and asset
mix. The funds are ranked every three, six, and twelve months.
- - MERCER MEIDINGER, INC. compiles a universe of approximately 600 equity funds,
representing about 500 investment managers, and updates their rankings each
calendar quarter as well as on a one, three, and five year basis.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
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MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as the F-1+ and F-1 categories.
G00343-01 (7/94)
